Period  3Q13/9M13

Actual vs. Expectations  DIGI reported 9M13 NP of RM1.16b (+20.5% YoY) which came in within our expectation but slightly below the street estimate. The result accounted for 72.8% of our and 69.9% of the consensus full-year earnings estimate, respectively.

 Overall, the 3Q13 performance was mainly driven by continuous improvements in network quality, larger 3G network footprint and customer base, as well as higher take-up rate of its mobile internet offerings.

Dividends  It declared a third interim NDPS of 5.7 sen (ex-date: 12 Nov.), which translates into a 99% payout ratio, bringing its total NDPS for the 9M13 to 14.3 sen (vs. 23.8 sen in 9M12).

Key Result Highlights  YoY, 9M13 revenue rose by 5.7%, fuelled by increased data usage and higher sales of smart devices. The NP improved further by 20.5% due mainly to lower depreciation charges (RM153m vs. RM386m in 9M12). As a result of the competitive IDD pricing and higher handset related subsidies, the 9M13 EBITDA margin was lower at 44.7% (vs. 46.6% a year ago).

 QoQ, 3Q13 revenue improved by 2.8% to RM1.7b on continuous growth in the service revenue (+1.8%) that was mainly driven by higher mobile internet revenue (+9.2%). The NP, however, surged by 18.1% to RM449m on the back of improved EBITDA and lower accelerated depreciation charges (RM16m vs. RM46m in 2Q13).

 The 3Q13 EBITDA margin remains relatively unchanged at 45.1% (vs. 45.2% in 2Q13), due to the relatively higher handset subsidised sales and IDD margins erosion from the weakening Ringgit.

 The group’s subscriber base also continued to gain growth momentum to 10.8m with a total net adds of 279k in 3Q13, which comprised +269k Prepaid and +10k Postpaid customers. The Prepaid and Postpaid ARPUs were, however, lower by RM1 each to RM41 and RM82, respectively.

 Data revenue accounted for 31.4% (2Q13: 30.5%) of DIGI’s 3Q13 total revenue, mainly driven by higher smartphone penetration rate of 34.0% (+3.6pp QoQ)

Outlook  DIGI maintained its 2013 revenue guidance of 5%-7% growth but lowered its EBITDA and cash flow margin by 1pp each to 45% and 32%, respectively.

Change to Forecasts  Raised our FY13-FY14 NP by 0.8% and 0.3%, after some fine-tuning.

Rating   Maintain MARKET PERFORM rating.

Valuation  Our TP remains unchanged at RM5.24 based on a targeted FY14 EV/forward EBITDA of 12.7x (+1.0SD).

Risks to Our Call  Intensifying competition. 

Source: Kenanga